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Archives of Business Research – Vol. 10, No. 11
Publication Date: November 25, 2022
DOI:10.14738/abr.1011.13399. Akinyede, O. M., Ayodele, T. D., & Olasupo, S. F. (2022). Economic Crisis and Personal Financing in Nigeria. Archives of Business
Research, 10(11). 86-93.
Services for Science and Education – United Kingdom
Economic Crisis and Personal Financing in Nigeria
Akinyede, Oyinlola Morounfoluwa
Department of Finance, Redeemer’s University
Ede Osun State, Nigeria
ORCID ID: 0000-0001-6587-0531
Ayodele, Thomas Duro
Department of Finance, Redeemer’s University, Ede
ORCID ID: 0000-0002-0070-2948
Olasupo, Sunday Featus
Department of Accounting. Redeemer's University Ede
ORCID number is 0000-0002-0081-3103
ABSTRACT
The study was carried out to find out the relationship between economic crisis and
personal financing among Nigerian workers. The research work made use of both
primary and secondary data. Primary data were collected through questionnaires
and secondary data sourced from the Central Bank Annual Reports and Bureau of
Statistics. Multivariate analysis was applied to determine the relationship between
Economic crisis (proxied by inflation, exchange rate, unemployment and cost of
living) and personal financing (proxied by spending, tax, savings and investment).
Results from the analysis showed a significant positive relationship between
economic crisis and personal savings of Nigerian workers. The results showed
further that both workers' personal spending and taxes have a positive relationship
with the economic crisis in Nigeria, and their relationships are statistically
significant at a 5% significance level. It means all the proxied economic crisis
variables jointly affect Nigerian workers' personal savings, spending and personal
taxes. However, economic crisis had no significant effect on the investment of
Nigerian workers. Economic crisis does not influence how Nigerian workers invest
their meagre income. Therefore, the economic drivers (governments) are advised
to pay more attention to tackling the problems of the high exchange rate, inflation
rate, and unemployment rate bedeviling the country to reduce the overall cost of
living in Nigeria.
Keywords: Economic crisis, Inflation, Exchange rate, Unemployment, Cost of living,
Spending, Savings.
JEL: D14, D51, M12
INTRODUCTION
An economic crisis is when a country's economy experiences a sudden downturn in its
aggregate output of real gross domestic product (GDP). Though Nigeria has not experienced a
decrease in its gross domestic product, all indicators of economic crises (high cost of living,
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Akinyede, O. M., Ayodele, T. D., & Olasupo, S. F. (2022). Economic Crisis and Personal Financing in Nigeria. Archives of Business Research, 10(11). 86-
93.
URL: http://dx.doi.org/10.14738/abr.1011.13399
increase in unemployment rate, poverty, high inflation rate and high exchange rate) have
conspicuously manifested in our economy today. The lockdown of the economy in the year
2020 has plunged the economy of Nigeria into recession. The most dreadful about our economy
now is that the policymakers seem helpless, without knowing the right direction to paddle the
canoe of the country's affairs with accompanying vices like banditry, epileptic power supply,
kidnapping, and farmer-herder conflicts, among others.
Nigeria is already facing severe fiscal problems, with its rising budget deficit, debt and shrinking
revenue. In July, PREMIUM TIMES reported how the country's fiscal position worsened in the
year's first four months as the cost of repaying debt surpassed the government's revenue in the
first quarter of 2022. Nigerian government deficit spending shot up to N3.09 trillion in the first
quarter of 2022. The country's external debt has not been efficiently utilised because borrowed
funds are usually used to finance recurrent expenditure instead of capital infrastructural
development, which would have been self-liquidating.
Continuous borrowing with its attached conditionalities has depleted the naira value, which
has led to the high cost of all imported raw materials, equipment and other foreign goods. This
has also led to imported inflation. Recently, the inflation rate has risen from 15.63% in
December 2021 to 19.64% in July 2022 (Premium times). This led to a high cost of living in the
presence of stagnated workers' salaries in the country. Hence an average worker spends all his
salary -- in the face of income tax and value-added tax (VAT) -- on consumption and may still
want to borrow available to consume.
In many cases, the banking sector has not come to the aid of the production sector, as the
interest rate has increased as high as 25% to 30% on loans. With this rate, hardly can any
manufacturing company get an internal rate of return that can repay such a cost of debt. These
problems, coupled with unsteady power in the last two decades, have pushed many
manufacturing companies like Dunlop Plc, formerly in Nigeria, to neighbouring countries
(Ghana), while others outrightly closed their businesses, laying off their workers.
Economic crisis is proxied by inflation, cost of living, unemployment and exchange rate, while
personal financing is proxied by worker's savings, investment, spending and personal taxes.
Though many authors have done some research in this area by linking one construct at a time
from each of the dependent and the independent variables, this research investigated the effect
of all the constructs that make up the economic crisis, jointly and severally, on the constructs
that make up the personal financing. Therefore, the major objective is to determine the effect
of Nigeria's economic crisis on Nigerian workers' personal financing.
Specifically, the paper is out to find:
• The effect of the Economic crisis on Personal Savings
• The relationship between Economic crisis on Personal Investment
• The effect of the Economic crisis on Personal Spending
• The impact of the Economic crisis on Personal Taxes.
Research Questions and Research Hypothesis are formulated in line with the research Objectives
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Archives of Business Research (ABR) Vol. 10, Issue 11, November-2022
Services for Science and Education – United Kingdom
LITERATURE REVIEW
An economic crisis is when a country's economy experiences a sudden downturn in its
aggregate output or real gross domestic product (GDP). A country is said to have an economic
crisis when they encounter a financial crisis (a wide variety of situations in which some
financial assets suddenly lose a large part of their nominal value). The effect of economic crisis
can be felt in the Increased unemployment, loss of income which directly influence the cost of
living and increased vulnerability have been among the dominant social impacts of the crisis.
The world experienced a global economic crisis in the form of recession between the years 2007
to 2009 as a result of the United States bubble and high rates of sub-prime and adjustable-rate
mortgages (ARMs), leading to the inability of homeowners to make their mortgage payments.
(Subprime loans are loans given out even when the borrower has not passed the necessary
credit checks). This phenomenon adversely affected Nigerian investors as the Nigerian Stock
Market recorded massive losses in the value of shares of quoted companies because the foreign
investors withdrew their holdings to their home countries. Nigeria was yet to recover from the
problem before the Covid-19 plague, which negatively affected the economy.
VARIABLES CONSTRUCTS CONCEPTUAL STUDIES
Economic
crisis
Inflation Adeleye, Ogundipe, Ogunrinola & Adediran (2019);
Mindrican (2020); Briggs, W. (2022).
Exchange rate Aloui, Hkiri, Hammoudeh, & Shahbaz, (2018);
Olayeni, Tiwari, & Wohar,. (2020); Rajković, Bjelić,
Jaćimović & Verbič, (2020).
Unemployment Uju, & Racheal, (2018); Liotti (2020); Onifade, Ay,
Asongu, & Bekun, (2020).
Cost of living Holleran (2019); Aytaç (2021); Fortis, Kriebardis,
Georgatzakou, Lyrakos, Alexiou, Antoniou, &
Valsami, (2022).
Personal
Financing
Personal Savings Hanspal, T. (2018).
Mongale, I. P., Mashamaite, T., & Khoza, K. (2018).
Lawal, S., & Abdulrahman, R. M. (2022).
Personal Investment CHANG, (2021). Yahaya, Dutse, & Bello, (2021).
Zhanje, & Jeke, (2022).
Personal Spending Akinyede, Ayodele & Ojedele (2022)
Personal Taxes Link, Menkhoff, Peichl, & Schüle (2022).
The table above summarises the review of concepts relevant to literature where the constructs
are used as measures of the variables.